Reports on Friday claimed a Chinese company is planning to build a new $39 billion city with a major seaport, industrial area and free-trade zone on Papua New Guinea’s south coast, just 200 kilometres from Australian territory.

According to leaked documents obtained by The Australian, Hong Kong-registered company, WYW Holding, has approached the Papua New Guinea government with a proposal to transform part of Daru Island, in the Torres Strait, into a multibillion-dollar megacity, which they’re calling the ‘New Daru City’.

“We hope that you and your government will agree to engage with us on this ambitious plan which is, as you are aware, predicated on an agreed Sovereign Guarantee based on a long-term BOT contract between and for the ­mutual benefit of both parties,” company chief executive Terrance Mo said in a letter to PNG Prime Minister James Marape last April.

However, a spokesman for Marape told The Australian he was “unaware of such projects”, but the country would not turn away foreign investment, so long as it complied with laws and local Papua New Guineans benefited from it.

Prime Minister Scott Morrison has since weighed on the topic and said the proposed plans were “very speculative at this point”.

“I’m not surprised by it but I think at this stage it would be best to file it under ‘speculation’,” Morrison told reporters during a press conference on Friday, 7News reports.

“I have a very close relationship with prime minister Marape as I’ve had with previous prime ministers in Papua New Guinea. We regularly discuss the various pressures in our region and I think we’re very much on the same page about those issues.”

China is Australia’s largest trading partner, but in recent months Australia’s relationship with the country has been rocky. Last November, the Chinese government announced it was placing tariffs on all Australian wine imports, a move that has since seen Australian wine imports to China fall by 75 per cent. And earlier in the year China announced its decision to impose an 80 per cent tariff on Australian barley and blacklisted four major beef exporters due to labelling violations.

Not to mention, at the height of the coronavirus crisis, Chinese officials warned citizens not to travel to Australia. The move was likely provoked by Morrison’s comments last year which saw the prime minister calling out the World Health Organization (WHO) for their decision to back the reopening of China’s wet markets, which have been blamed by some experts for the Covid-19 outbreak.